Question
The following represents the targets accounting data you have estimated for the years 2018-2019. Assume that all of these numbers are end-of-year data (i.e. today
The following represents the targets accounting data you have estimated for the years 2018-2019. Assume that all of these numbers are end-of-year data (i.e. today is January 1st, 2018 and the revenues, etc. are at the end of 2018, 2019). In addition, you have the following information for the target and the acquiring firm.
A. Calculate the appropriate cash flows.
B. Calculate the appropriate discount rate for the acquiring firm based on the value of the target.
C. Calculate the target firm value. What would be a reasonable offer (i.e. $/share) for the target.
|
| 2018 | 2019 |
| Revenues | $9,000,000 | $13,000,000 |
| Cost of Goods Sold | $4,500,000 | $8,000,000 |
| Depreciation | $1,000,000 | $1,200,000 |
| A&G | $1,200,000 | $900,000 |
| Interest | $750,000 | $800,000 |
| Retained Earnings | $600,000 | $800,000 |
| Target | Acquiring Firm |
| L = 1.8 | Cap Structure: Debt = 50% |
| Taxes = 30% | Taxes = 34% |
| Cap Structure: Debt = 30% |
|
| # of Shares Outstanding = 800,000 | Other Information |
| Current Price per Share = $18 | T-bond rate = 6% |
| Est. Future Growth Rate = 8% | Mkt Risk Premium = 5% |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started